More to Come from Top-Performer India?

As a major oil importer, India's economy is expected to benefit from falling commodity prices. This is pulling down inflation which may prompt the Indian central bank to cut interest rates

Patricia Oey 11 November, 2014 | 9:25AM
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This article is part of the Morningstar's Guide to Emerging Market Investing. Click here to find out just what an emerging market is and which hold the potential to grow exponentially - boosting your investment portfolio.

India has been one of the best-performing markets in 2014 on both domestic and international investors' optimism that the new prime minister is going to foster more business-friendly reforms. The MSCI India Index is up about 25%, while the Morningstar India Equity category is a whopping 45% higher year-to-date. So, it may seem right now is not the best time to invest in India, but there is a catalyst that may help sustain the current rally—and that is falling oil prices.

Historically, India has had a hard time. The country pays out a considerable amount of fuel subsidies to citizens, and government has had a hard time cutting these subsidies. These subsidies have weighed on the fiscal deficit, they've hindered the country's ability to invest in infrastructure, and they’ve also impacted the country's credit ratings. But with falling oil prices, the prime minister saw an opportunity to cut the fuel subsidy at a time when it wouldn’t have such a large impact on the end consumer.

Falling oil prices also have a lot of positive knock-on effects on the Indian economy. India imports about 70% of its oil needs, so with falling oil prices we're seeing less pressure on the country's current account, we're seeing inflation fall, and this may prompt the Indian central bank to cut interest rates a little earlier than expected. The result is that consumers feel more confident, with more cash in their pockets. These improving macroeconomic trends combined with Prime Minister Modi's ambitious reform programme might create a virtuous cycle and help set the stage for India's long-awaited next phase of growth.

Top-Rated India Funds

If you feel that your portfolio deserves some exposure to India, there are several India ETFs available on the London Stock Exchange. Db x-trackers MSCI India Index UCITS ETF is the cheapest, with an annual ongoing charge of 0.75%, while Amundi ETF MSCI India UCITS charges 0.80%. Both track a cap-weighted index. Among the actively-managed strategies, three India equity funds have earned a forward-looking, Morningstar Analyst Rating of Silver: Comgest Growth India, Fidelity India Focus and Franklin India. Investors preferring a closed-end fund structure will find one investment trust that has earned a positive Morningstar Analyst Rating; JPMorgan Indian Investment Trust is rated Bronze.

Morningstar.co.uk managing editor Holly Cook contributed to this article.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Comgest Growth India EUR R Acc48.93 EUR-1.43Rating
Fidelity India Focus A-GBP9.40 GBP1.34Rating
Franklin India A(acc)USD54.07 USD1.21Rating
JPMorgan Indian Ord810.13 GBP1.27Rating
Xtrackers MSCI India Swap ETF 1C GBP1,269.62 GBP1.73Rating

About Author

Patricia Oey  Patricia Oey is an ETF analyst at Morningstar.